For businesses, the CARES Act stimulus package includes several initiatives aimed at supporting those that have been hard hit by the COVID-19 pandemic. We know that businesses are struggling economically as a result of social-distancing orders from state and local officials across the country, and the new package will provide much-needed financial assistance. Here are the details about what you need to know:
- A $500 billion loan program for mid-sized and large businesses: A Treasury Department Special Inspector General for Pandemic Recovery will oversee and audit use of the funds, as will the Congressional Oversight Commission. Loans for qualifying mid-sized and large companies will come from a $454 billion fund controlled by the Federal Reserve, with an additional $46 billion reserved for loans to the aviation industry and other businesses “critical to maintaining national security.”
- Loans for small businesses: There is $349 billion aimed at providing loans for small businesses (with 500 or fewer employees). Small businesses will receive federally guaranteed emergency loans at community banks if they pledge not to lay off their workers. Eligible businesses can apply for the loan through June 30, 2020 and the loans will be forgiven if the employer continue to pay workers for the duration of the crisis.
- Businesses must provide their lender with payroll documentation.
- Unlike other Small Business Association (SBA)-backed loans, business owners will not have to provide personal guarantees or use all their available assets — from real estate to equipment — as collateral. There are no fees, and the interest rate is fixed at 1.00%.
- The program comes with restrictions: Loans depend on payroll costs and are capped at $10 million, to businesses with 500 or fewer employees. Loans cap at $100,000 per employee per year.
- Businesses would not have to repay loans covering up to eight weeks’ worth of payroll expenses, if the loan use is limited to payroll costs, mortgage interest, rent, and utilities.
Q&A: Loans for Small Businesses
Q. What are the loans to be used for?
A. Eligible small businesses and nonprofits may obtain forgivable loans to keep employees on the job (or bring back employees already laid off) and to pay overhead costs such as rent, mortgage interest, and utilities.
Q. Do I have to pay back what I borrow?
A. No, so long as employers use the money to maintain their payrolls at about the same levels as before the COVID-19 outbreak.
Q. What happens if I borrow more money in forgivable loans than I actually end up using for payroll and approved operating expenses?
A. Any amount not used for approved purposes becomes a 2-year loan, with no prepayment penalties fees.
Q. Can I include related expenses, like health and retirement benefits, as part of my payroll?
A. Yes, benefits, including health, retirement, and parental, family, medical, and sick leave, are covered by forgivable loans.
Q. How do I apply for one of these loans?
A. The quickest way to get started may be to contact your existing banker. A bank (or other type of lending institution) which is already familiar with your business. Tell them you want to apply for a loan under the Payroll Protection Program, which is administered by the Small Business Administration. Any lending institution previously approved to make SBA loans is already approved for this program.
Q. What can I do to get ready?
A. You need to be able to present documentation of what you paid in wages and benefits for at least the last 12 months, plus the number of employees you employed.
Q. Who is eligible?
A. The definition of a small business or nonprofit may be larger than you think: up to 500 employees. If you think you may exceed that limit or be close to it, check the Small Business Administration’s website for something called the North American Industry Classification System. It will help you determine your eligibility based on staffing at each physical location.